Ambrose Evans-Pritchard Makes an Important Economic Discovery
Sometimes a little knowledge can be dangerous. As Frederic Bastiat already pointed out a long time ago, it is the hallmark of a good economist to see what is not immediately obvious. That which is not immediately seen is often far more important than what is. One of the reasons why Keynesianism has been triumphant in the 20th century (and beyond, as it appears) is precisely that it is seemingly so easy to grasp because it focuses on superficial phenomena only. It is therefore no surprise that Keynes himself was full of praise of the amateurs and economic cranks that preceded him (such as Silvio Gesell, to name one).
Ambrose Evans-Pritchard (AEP) is a declared supporter of the monetarist school, which we have frequently described as 'Keynesianism in drag'. That is perhaps not very charitable of us, but clearly the two schools have a lot in common, from their habit of aggregation of economic data to their support of statism and their embracing of 'ethical and epistemological relativism' as Hans-Hermann Hoppe has pointed out. Hoppe also notes that while monetarism is today seen as “…defin[ing] the borderline of respectable opinion on the political Right, which only extremists cross”, it was actually considered to be part of the 'left fringe' in the 1940s.
John Law, the first in a long list of monetary cranks who believed prosperity can be conjured into being via the printing press.
(John Law de Lauriston, by François GUIZOT)
The part of monetarist theory that is important for AEP is that the monetarists support money printing to avert the alleged 'danger of deflation'. In a recent article he goes on about why the Bank of England should 'never unwind QE' (gee, surprise!), as if there were actually any danger of that ever happening. We doubt the BoE actually needs his support on the issue. The danger is actually rather that it might one day listen to even more radical money cranks like Lord Adair Turner or Martin Wolf, who think it would be a great idea to simply cancel the debt the the central bank has bought.
Anyway, AEP's article is the usual tirade in defense of the printing press, and no new angle is really presented. He is rattling off the well-worn litany of evil things money printing has allegedly 'prevented', such as e.g. high unemployment by stealing from savers and favoring debtors (AEP is 'sure' unemployment is 'lower than it would have been' otherwise, which due to the lack of a time machine can of course never be proved or disproved). He graciously neglects to mention that the bonuses of bankers were also protected quite effectively.
As such the article is not really remarkable; we have allegedly avoided a “replay of the 1930s” and should all be grateful for the courageous printing of gobs of money by the central planners. However, there is one passage that reveals why it would really be best if AEP were to eschew economic theorizing:
“Puritans and Calvinists are certain that there must be sting in the QE tail for Britain in the end. Perhaps so, perhaps the expanded money base will come back to haunt us, but such arguments mostly smack of religion, dogma, and psychological obsession. There is no such determinist force at work.
Can there really be such a thing as a free lunch in economics? We will never be able to prove it either way, but on balance it looks like the answer is yes.”
We are of course not really surprised by this. Economists who doubt the wisdom of money printing are never challenged on their actual arguments (which we doubt AEP fully understands anyway). Instead they are simply denounced as 'Puritans and Calvinists' driven be 'religious dogma', which admittedly is a lot easier to do than engaging with their arguments.
However, even the many economists who do support central planning activities by the monetary authorities (and they are actually in the majority, not least because said authorities are a major source of income for them) would probably find it difficult to argue that there exists such a thing as a 'free lunch' in economics. They may argue that the price of 'QE' is 'worth paying', but even they won't stoop to calling it a 'free lunch'.
In fact, the only reason why there is a science of economics at all is that such a 'free lunch' does not exist. Without scarcity, there would be no need to economize and consequently there would be no economic theory either, which can only speak of those means that actually are scarce. Things that literally come for free are simply outside the sphere of economics. Economic theory has nothing to say about them.
For all those who were not fully aware yet that AEP is completely out to lunch on matters economic, this should hopefully settle the issue.
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